Pre-week
11232)
Kinds of Corporations
1. Stock Corporations
Nature:
Corporations which have capital stock
divided into shares and are authorized to
distribute to the holders of such shares,
dividends, or allotments of the surplus profits
on the basis of the shares held. (Sec. 3, R.A.
No. 11232)
Those who compose:
Stockholders who may be:
Corporators – those who compose a
corporation, as stockholders or shareholders
are or
Incorporators - those stockholders members
mentioned in the AOI as originally forming
and composing the corporation and who are
signatories thereof. (Sec.5, R.A. No. 11232)
Governing Body: Board of Directors
Shares of Stocks: Yes. The shares in stock
corporations may be divided into classes or
series of shares, or both. The shares or series
of shares may or may not have a par value.
Classes of Shares:
Preferred shares of stock are those which
may be given preference in the distribution
of dividends and in the distribution of
corporate assets in case of liquidation, or
such other preferences. (Sec.6, R.A. No.
11232)
NOTE: Common Shares are one issued by the
corporation as voting shares.
Founder’s Shares may be given certain rights
and privileges not enjoyed by the owners of
other stocks. (Sec. 7, R.A. No. 11232)
Redeemable shares are those shares which
may be purchased by the corporation from
the holders of such shares upon the
expiration of fixed period, regardless of the
existence of unrestricted retained earnings in
*** = Important as stated by lecturer
the books of the corporation. (Sec. 8, R.A. No.
Payment Dividend
Yes. Dividend payment may be in the form of :
Cash
Property
Stock
Before a stock corporation can pay dividend,
the following requirements must be
complied:
For Cash Dividend - there must be approval
by a majority of the board of directors;
For Stock Dividend – there must be approval
by a majority of the board of directors; and
There must be approval of stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock at a regular or
special meeting duly called for the purpose.
NOTE: The law provides that board of
directors of a stock corporation may declare
dividends out of the unrestricted retained
earnings of the corporation.
Basis of dividend payouts shall be the
stockholder's outstanding stock held by him
as appearing in the books of the corporation.
(Sec. 42, R.A. No. 11232)
2. Non-stock Corporation
Nature: is a corporation where no part of its
income is distributable as dividends to its
members, trustees, or officers. (Sec. 86, R.A.
No. 11232)
Those who compose: Members
Governing Body: Board of Trustees
Shares of Stocks: None
Payment of Dividend: No
3. Educational Corporations
Nature: those established for the purpose of
providing educational or academic services.
Education corporations shall be governed by
special laws and by the general provisions of
 the Revised Corporation Code. (Sec. 105, R.A.
No. 11232)
Those who compose:
Members (for Non-Stock)
Stockholder for stock corporations
Governing Body:
Board of Trustees for educational institutions
organized as non-stock corporations
Board of Directors for educational
institutions organized as stock corporations
Shares of Stocks:
Yes (for educational institutions organized as
stock corporations)
No. (for educational institutions organized as
non-stock corporations)
Payment of Dividends:
Yes (for educational institutions organized as
stock corporations)
No. (for educational institutions organized as
non-stock corporations)
4. Close Corporation
Nature:
A corporation whose articles of incorporation
provides that:
a) all the corporation's issued stock of all
classes, exclusive of treasury shares, shall
be held of record by not more than a
specified number of persons, not
exceeding twenty (20);
b) all the issued stock of all classes shall be
subject to one (1) or more specified
restrictions on transfer permitted by law;
and
c) the corporation shall not list in any stock
exchange or make any public offering of
its stocks of any class. (Sec. 95, R.A. No.
11232)
Those who compose: Stockholders
*** = Important as stated by lecturer
Governing Body: Board of Directors
Shares of Stocks: Yes
5. Corporation Sole
Nature:
A corporation established for the purpose of
administering and managing, as trustee, the
affairs, property and temporalities of any
religious denomination, sect or church, a
corporation sole may be formed by the chief
archbishop, bishop, priest, minister, rabbi, or
other presiding elder of such religious
denomination, sect or church.
(Sec.108, R. A. No. 11232)
Corporation Sole vs. Corporation Aggregate
A corporation sole is "one formed by the
chief archbishop, bishop, priest, minister,
rabbi or other presiding elder of a religious
denomination, sect, or church, for The
purpose of administering or managing, as
trustee, the affairs, properties and
temporalities of such religious denomination,
sect of church."
A corporation aggregate formed for the same
purpose, on the other hand, consists of two
or more persons.
(Iglesia Evangelica Metodista en las Islas
Filipinas vs. Lazaro, G.R. No. 184088, July 6,
2010)
Shares of Stock : None
Payment of Dividend: No
6. One Person Corporation
Nature:
A corporation with a single stockholder.
(Sec. 116, R.A. No. 11232)
Those who compose: Single Stockholder
Peculiarity
 The single stockholder shall be the sole
director and president of the OPC. (Sec. 121 R.
A. 11232)
Only a natural person, trust, or an estate may
form a One Person Corporation. (Sec. 116, R.
A. No. 11232)
Not allowed to Form an OPC
Banks and quasi-banks, preneed, trust,
insurance, public and publicly-listed
companies, and non-chartered government-
owned and -controlled corporations may not
incorporate as OPC.
A natural person who is licensed to exercise a
profession may not organize as a OPC for the
purpose of exercising such profession xxx".
(Sec. 116, R.A.11232)
Liability of Single Shareholder
If the single stockholder cannot prove that
the property of the One Person Corporation
is independent of the stockholder' personal
property, the stockholder shall be jointly and
severally liable for the debts and other
liabilities of the One Person Corporation.
The principles of piercing the corporate veil
applies to One Person Corporations. (Sec.130,
R.A.11232)
Governing Body : Single Stockholder/Director
Shares of Stocks : Yes
Payment of Dividend: Yes (to insure
independence of property)
Board of Directors/ Trustees
Composition
1. Stock Corporations
Regular Directors
Independent Directors
2. Non-stock corporations
Regular Members of the Board of
Trustees
Independent Trustees
*** = Important as stated by lecturer
Independent Directors
An independent director is a person who,
apart from shareholdings and fees received
from the corporation, is independent of
management and free from any business or
other relationship which could, or could
reasonably be perceived to materially
interfere with the exercise of independent
judgment in carrying out the responsibilities
as a director.
In what corporations are independent
directors required?
The board of corporations vested with public
interest shall have independent directors
constituting at least twenty percent (20%) of
such board.
What corporations are deemed vested with
public interest?
a) Corporations under the SRC namely:
1) corporations listed with an
exchange (listed under the stock exchange)
or
2) with assets of at least Fifty Million
Pesos and having two hundred or
more holders of shares, each holding
at least one hundred (100) shares of a
class of its equity shares;
b) Banks and quasi-banks, NSSLAs,
pawnshops, corporations engaged in money
service business, pre-need, trust and
insurance companies, and other financial
intermediaries; and
c) Other corporations engaged in business
vested with public interest as may be
determined by the SEC. Sec. 22 RCC
Membership
Board of Directors
>Only for stock corporation
>Each of the directors must be
elected from among the holders of
stocks registered in the corporation's
books

>Each has a term of one (1) year
>a director shall cease to be such
when he ceased to own at least one
(1) share of stock
Board of Trustees
> only for non-stock corporations
> each of the trustees shall be elected
by the members of the non-stock
corporation
> each has a term not exceeding three
(3) years
> a trustee shall cease to be such
when he ceased to be a member of
the corporation.
Disqualification of Directors, Trustees
or Officers
If, within five (5) years prior to the
election or appointment as such, the
person was:
(a) Convicted by final judgment:
1) Of an offense punishable by
imprisonment for a period
exceeding six years;
2) For violating the RCC; and
3) For violating R. A. No. 8799,
or the SRC;
(b) Found administratively liable for
any offense involving fraudulent acts;
and
(c) By foreign court or equivalent
foreign regulatory authority for acts,
violations or misconduct similar to
those enumerated in pars. (a) and (b)
above.
(Sec. 26, R.A. No. 11232)
Can directors or trustees be removed
even if there is no just cause?
Yes, directors or trustees be removed
with or without cause. However,
removal without cause may not be
used to deprive minority stockholders
*** = Important as stated by lecturer
or members of the right of
representation to which they may be
entitled under Section 23 of the law.
(Sec. 27, R.A. No. 11232)
Procedure in removing directors or
trustees by stockholder or members
vote
A directors or trustee may be
removed from office
1. There must be a special meeting
of the stockholders or members
for the purpose of removing any
director or trustee .
2. There must be a notice of the time
and place of such meeting, as well
as of the intention to propose
such removal, must be given by
publication or by written notice
prescribed by law.
3. There must be a vote of the
stockholders holding or
representing at least 2/3 of the
outstanding capital stock or a vote
of at least 2/3 of the members of
a nonstock corporation entitled to
vote, must be obtained approve
the removal of a director or
trustee. (Sec. 27, R.A. No. 11232)
***Powers, Duties and Prerogatives
Statutory Basis for the powers of the
Board
The board of directors or trustees
shall exercise the corporate powers,
conduct all business, and control all
properties of the corporation.
(Sec. 22, R.A. No. 11232)
Acts of Officers Not Authorized by
the Board
Acts of an officer that are not
authorized by the board of
directors/trustees do not bind the
corporation, unless the corporation
ratifies the acts or holds the officer
out as a person with authority to
transact on its behalf.
 (University of Mindanao, Inc. vs.
Bangko Sentral ng Pilipinas, G.R. Nos.
194964-65, January 11, 2016)
Extent of the Power
The business of a corporation is
conducted by its board of directors,
and so long as the board acts in good
faith, the State, through the courts,
may not interfere with its
management decisions.
(Ago Realty & Dev't. Corp. v. Ago, G.R.
Nos. 210906 & 211203, October 16,
2019)
In what instances will directors or
trustees be liable jointly and
severally for damages suffered by the
corporation, its stockholders or
members and other persons?
Directors or trustees shall be liable
jointly and severally for all damages
suffered by the corporation, its
stockholders or members and other
persons in cases:
> When directors or trustees who
willfully and knowingly vote for or
assent to patently unlawful acts of the
corporation or
> When directors or trustees are
guilty of gross negligence or bad faith
in directing the affairs of the
corporation or
> When directors or trustees acquire
any personal or pecuniary interest in
conflict with their duty as such
directors or trustees.
(Sec. 30, R.A. No. 11232)
State the rule when a director,
trustee, or officer acquired an
interest adverse to the corporation in
respect of any matter which has
been reposed in them in confidence
by the corporation?
The law provides that a director,
trustee, or officer shall not attempt to
acquire, or acquire any interest
adverse to the corporation in respect
of any matter which has been reposed
in them in confidence, and upon
*** = Important as stated by lecturer
which, equity imposes a disability
upon themselves to deal in their own
behalf.
If the said director, trustee, or officer
have acquired an interest adverse to
the corporation, such director, trustee,
or officer shall be liable as a trustee
for the corporation and must account
for the profits which otherwise would
have accrued to the corporation.
(Sec. 30, R.A. No. 11232)
Rule in case of disloyalty of a director
The rule is that "where a director, by
virtue of such office, acquires a
business opportunity which should
belong to the corporation, thereby
obtaining profits to the prejudice of
such corporation, the director must
account for and refund to the latter
all such profits even if that the
director risked one's own funds in the
venture. Sec. 33 RCC
Exception :
Yes, the rule will not apply if
the act has
been ratified by a vote of the
stockholders owning
or representing at least two-
thirds (2/3) of the
outstanding capital stock of
the corporation.
(Sec. 33, R. A. No. 11232)
Duties of the Board
***Special Fact Doctrine
Special Fact Doctrine is a doctrine
holding that a corporate officer with
superior knowledge gained by virtue
of being an insider owes a limited
fiduciary duty to a shareholder in
transactions involving transfer of
stock.
Test on the Applicability of the
Special Fact Doctrine
 > That the material fact or
information was peculiarly within the
knowledge of one party; and
> That the information was not such
that could have been discovered by
the other party through the exercise
of ordinary intelligence.
Application:
In the sale of certain shares of the
corporation, the president and
corporate
Secretary deliberately withheld
certain information and to disclose
certain documents concerning
adverse contract information known
to them to the buyer. Can they be
held liable for damages?
Answer:
Yes, the "special facts" doctrine holds
that "absent a fiduciary relationship
between parties, there is nonetheless
a duty to disclose when one party's
superior knowledge of essential facts
renders a transaction without
disclosure inherently unfair".
Articles of Incorporation and By-Laws
Articles of Incorporation
Nature:
The articles of incorporation has been
described as one that defines the charter of
the corporation and the contractual
relationships between the State and the
corporation, the stockholders and the State,
and between the corporation and its
stockholders.
(Lanuza vs. Court of Appeals, G.R. No. 131394,
March 28, 2005)
Adoption:
> The articles of incorporation shall be
adopted and filed by the incorporators.
> All corporations shall file with the SEC AOI
in any of the official languages, duly signed
and acknowledged or authenticated, in such
*** = Important as stated by lecturer
form and manner as may be allowed by the
SEC. (Sec. 13)
> Should be filed with the SEC prior to
incorporation
Approval by SEC:
When the AOI and other pre-incorporation
documents are in order, the SEC shall issue
the certificate of incorporation.
Grounds for Disapproval:
(a) The articles of incorporation or any
amendment thereto is not substantially
in accordance with the form prescribed
by law;
(b) The purpose or purposes of the
corporation are patently unconstitutional,
illegal, immoral or contrary to
government rules and regulations;
(c) The certification concerning the amount
of capital stock subscribed and/or paid is
false;
(d) The required percentage of Filipino
ownership of the capital stock under
existing laws or the Constitution has not
been complied with. (Sec. 16, R.A. No.
11232)
Amendment of the AOI
Requirements:
For Stock Corporation:
a. approval by a majority vote of the board of
directors; and
b. the vote or written assent of the
stockholders representing at least two-thirds
(2/3) of the outstanding capital stock
For Non-Stock Corporation:
a. approval by the vote or written assent of
majority of the trustees; and
b. the vote or written assent of the at least
two-thirds (2/3) of the members.
Effectivity of the Amendment
1) upon their approval by the SEC; or
 2) from the date of filing with the SEC if not
acted upon within six (6) months from
the date of filing for a cause not
attributable to the corporation.
(Sec. 15, R.A. No. 11232)
By-Laws
Nature:
A corporation's by-laws is a legal document
setting forth key rules and regulations
governing the corporation's day-to-day
operations. It is designed for the internal
governance of the corporation.
Requirement for Adoption
If adopted pre-incorporation
Such by-laws shall be approved and signed by
all incorporators and submitted to the SEC,
together with the articles of incorporation.
If adopted post-incorporation
The affirmative vote of the stockholders
representing at least a majority of the
outstanding capital stock, or of at least a
majority of the members (in case of non-
stock) in case on nonstock corporations, copy
thereof, duly certified by a majority of the
directors or trustees and countersigned by
the secretary of the corporation, shall be
filed with the SEC. Sec. 45 RCC
Effectivity:
By-Laws shall be effective only upon the
issuance by the SEC of a certification that the
by- laws are in accordance with law. Sec. 45
RCC
Amendment to the By-laws
Requirements:
1) Approval by a majority of the board of
directors or trustees, and
2) Ratification by the owners of at least a
majority of the outstanding capital stock,
or at least a majority of the members of a
nonstock corporation.
*** = Important as stated by lecturer
The owner of two-thirds (2/3) of the
outstanding capital stock or two-third (2/3)
of the members in a nonstock corporation
may delegate to the board of directors or
trustees the power to amend or repeal the
bylaws or adopt new by-laws.
Any power delegated to the board of
directors or trustee to amend or repeal the
bylaws or adopt new bylaws shall be
considered as revoke whenever stockholders
owning or representing a majority of the
outstanding capital stock or majority of the
members shall so vote at a regular or special
meeting. (revoke delegation) Sec. 47 RCC
Effectivity of Amendment
The amended or new by-laws shall only be
effective upon the issuance by the SEC of
certification that the same is in accordance
with the Revised Corporation Code and other
relevant laws. Sec. 47 RCC
***Business Judgment Rule
Its decision to continue a part of its previous
operations did not negate good faith in its
decision to close shop, but is seen as an
exercise of its right to continue its business.
As long as no arbitrary or malicious action
on the part of the employer is shown, the
wisdom of a business judgment to implement
a cost saving device is beyond the court's
determination. After all, the free will of
management to conduct its own business
affairs to achieve its purpose cannot be
denied.
(Unera V. Shin Heung Electro, Inc., G.R. No.
228328 March 11, 2020)
Is a complaint filed by a stockholder without
a resolution emanating from the
corporation's board of directors valid?
No. One of the powers expressly granted by
law to corporations is the power to sue. As
with other corporate powers, the power to
sue is lodged in the board of directors, acting
as a collegial body. Thus, in the absence of
any clear authority from the board, charter,
or by-laws, no suit may be maintained on
behalf of the corporation. (AGO Realty &
Devt. Corp. vs. Dr. Angelita Ago, et. al., G.R.
No. 210906, Oct. 16, 2019)

Liability of Directors for Watered Stocks
A director or officer of corporation who:
a) Consents to the issuance of stocks for a
consideration less than its par or issued
value;
b) consents to the issuance of stocks for, a
consideration other than cash, valued in
excess of its fair value; or
c) having knowledge of the insufficient
consideration, does not file a written
objection with the corporate secretary
In this instance, the director or officer shall
be liable to the corporation or its creditors,
solidarily with the stockholder concerned for
the difference between the value received at
the time of issuance of the stock and the par
or issued value of the same.
(Sec. 64, R.A.11232)
***Intra-Corporate Dispute
A. Concept
An intra-corporate dispute is understood as a
suit arising from intra-corporate relations or
between or among stockholders or between
any or all of them and the corporation.
(Strategic Alliance Dev't. Corp. vs. Star
Infrastructure Dev't Corp., et. al., G.R. No.
187872, November 17, 2010)
B. ***Tests to Determine Existence of
Intra-Corporate Dispute
Tabang vs. NLRC, 334 Phil.424, (1997)
An intra-corporate controversy is one which
arises between a stockholder and the
corporation. There is no distinction,
qualification nor any exemption whatsoever.
The provision is broad and covers all kinds of
controversies between stockholders and
corporations.
*** = Important as stated by lecturer
DMRC Enterprises vs. Esta del Sol Mountain
Reserve, Inc., G.R. No. L-57936 Sept. 28,
1984
The Court introduced the nature of the
controversy test. It was declared that it is not
the mere existence of an intra-corporate
relationship that gives rise to an intra-
corporate controversy.
To rely on the relationship test alone will
divest the regular courts of their jurisdiction
for the sole reason that the dispute involves a
corporation, its directors, officers, or
stockholders. There is no legal sense in
disregarding or minimizing the value of the
nature of the transactions which gives rise to
the dispute.
Speed Distribution Inc. vs. Court of Appeals,
G.R. No. 149351, March 17, 2004
***To determine whether a case involves an
intra- corporate controversy, x x x , two
elements must concur:
(a) the status or relationship of the parties,
and
(b) the nature of the question that is the
subject of their controversy.
Belo Medical Group, Inc. vs. Santos, G.R. No.
185894, August 30, 2017
A conflict between two (2) stockholders of a
corporation does not automatically render
their dispute as intra-corporate. The nature
of the controversy must also be examined.
San Jose v. Ozamiz, G.R. No. 190590, July 12,
2017
To determine whether or not a case involves
an intra-corporate dispute, two tests are
applied the relationship test and the nature
of the controversy test.
Under the relationship test, there is an intra-
corporate controversy when the conflict is (1)
between the corporation, partnership, or
association and the public; (2) between the
corporation, partnership, or association and
the State insofar as its franchise, permit, or
license to operate is concerned; (3) between
the corporation, partnership, or association
and its stockholders, partners, members, or
officers; and (4) among the stockholders,
partners, or associates themselves.
 On the other hand, in accordance with the
nature of controversy test, an intra-corporate
controversy arises when the controversy is
not only rooted in the existence of an intra-
corporate relationship, but also in the
enforcement of the parties' correlative rights
and obligations under the Corporation Code
and the internal and intra- corporate
regulatory rules of the corporation.
Intra-Corporate Dispute Involving the
Dismissal of Corporate Officer
To be considered an intra-corporate
controversy, the dismissal of a corporate
officer must have something to do with the
duties and responsibilities attached to
his/her corporate office or performed in
his/her official capacity. (Manager, not a
corporate officer)
(Real vs. Sangu Phils, Inc., 655 Phil. 68 [2011])
The Court consistently ruled that a corporate
officer's dismissal is always a corporate act,
or an intra-corporate controversy which
arises between a stockholder and a
corporation. (Executive Vice President in by-
laws)
(Cacho v. Balagtas, G.R. No. 202974, Feb. 7,
2018)
The mere designation as a high-ranking
employee, however, is not enough to
consider one as a corporate officer.
(Malcaba vs. ProHealth Pharma Phils., Inc.,
G.R. No. 209085, June 6, 2018)
While a corporate office is created by an
express provision either in the Corporation
Code or the By-laws, what makes one a
corporate officer is his election or
appointment thereto by the board of
directors.
(Cacho V. Balagtas, G.R. No. 202974, Feb. 7,
2018)
C. Jurisdiction and Venue
All actions involving intra-corporate disputes
shall be commenced and tried in the Regional
*** = Important as stated by lecturer
Trial Court which has jurisdiction over the
principal office of the corporation,
partnership, or association concerned.
(Sec. 5, Interim Rules of Procedure Governing
Intra-N Corporate Controversies)
D. Importance of Determining Existence of
Intra- Corporate Dispute
An intra-corporate controversy within the
jurisdiction of the regular courts or an
ordinary labor dispute that the Labor Arbiter
may properly take cognizance of.
(Cacho v. Balagtas, G.R. No. 202974, Feb. 7,
2018)
Post-Examination Tips
After each examination, do not discuss your
answers with your fellow examinees.
Discussing them will not alter the results of
your examination. Focus on your next exam.
After the morning exam, rest and forget
about the exam that was.
Regain your physical and mental energy. If
time a permits, a quick nap will help a lot.
Finally, before each and every exam, the rule
allows you to call on HIM. Don't mind
begging.
He will be your greatest ally in your lonely
and treacherous journey towards the
destination you all want to be.
My Final Words Before You Become Lawyers
You have all gone this far.
You have endured all the
pains, humiliations, embarrassments, and
hardships that law school has to offer.
Now is the time for you to shine. Success is at
hand.
Welcome to the Legal Profession!!!
Dean Serge